Archive

Controller’s Office Misses $270 Million

28Jun2011

Written by Paul Hatfield

ACCOUNTING 101 - Wendy Greuel’s report of May 19 addressing shortcomings in the parking citation collection process also exposes inadequate procedures within her own department – the Office of the City Controller. [link]

The Department of Transportation had at least $270 million in delinquent accounts over five years old, but never written off.

She downplayed the impact of the delinquencies because citations over five years old are kept in DOT’s inactive files and not included in the city’s official financial statements. However, what Greuel does not disclose is that this means the controller’s office is not performing an accounts receivable roll forward, which is an important standard operating procedure in any well run organization, and in quite a few poorly run ones as well. It provides an excellent test of the balances’ reasonableness.

For the non accountants out there, here is how it works (the amounts are examples only):

The Ending Receivable Balance from the prior year………$ 1,000,000

New billings (citations in the case of the city)……………………200,000

Less: amount collected in the year…………………………………(300,000)

Less: Reserve for uncollectible citations……………………….( 50,000)

Ending Balance…………………………………………………………..$ 850,000

Given that uncollectible activity was not being reported or disclosed, the roll forward would have produced an expected balance of $900,000 , but DOT would have reported the receivable balance net, or $850,000. The difference of $50,000 would have been evident and served as a red flag for the controller’s staff to determine why it existed.

Evidently, the internal controls and procedures are weak when a simple analysis that would have warned of a problem – especially one for $270 million – was not performed. Greuel is simply taking departmental numbers without testing them for reasonableness.

We cannot keep electing politicians who have zero knowledge of financial management to a post as important as City Controller.

You have to wonder what else is being overlooked.

(Paul Hatfield is a CPA and serves as Treasurer for the Neighborhood Council Valley Village. He blogs at Village to Village and can be reached at: phinnoho@aol.com ) –cw